Brussels, 25/07/2016 (Agence Europe) - The European Union and the G20 are moving forward in line with broadly similar timetables towards creating a blacklist of tax havens, but the initial European proposals suggest the possibility of a stricter European definition of what is deemed to be a 'good' jurisdiction in taxation matters than want to be adopted at international level.
The EU is only in the initial stages and is expected to produce its list by the end of 2017, whilst the G20 also hopes to have its list by July of next year. The Commission has done some ground work. The first stage aims to define the countries to be assessed initially, in order to enter into dialogue with them. If this dialogue does not lead to satisfactory results, then these countries may be listed. In a document dated 15 July, which has been discussed by the experts of the member states and of which EUROPE has had sight, the Commission proposes to start by excluding from the list of countries to be assessed 48 of the least-developed countries and those with which the EU has just updated its agreement on the automatic exchange of information, namely Switzerland, Liechtenstein, Andorra, Monaco and San Marino. The opinions of the member states are reported to differ over these two issues. Another controversial element, which was not directly discussed at the group meeting of the Council on Wednesday 20 July, concerns the dependent territories of member states of the EU.
Transparency and beyond. The G20 wants a blacklist based solely on transparency criteria. According to the OECD, jurisdictions should be evaluated on the basis of three criteria: the implementation of the exchange of information by request, that of the automatic exchange of information and participation in the multilateral agreement concerning mutual administrative assistance in taxation matters. These criteria were approved by the finance ministers of the G20, meeting on Saturday 23 and Sunday 24 July in Chengdu (see other article). A document of the Slovak Presidency of the Council of the EU asks, amongst other things, how many criteria third countries will have to meet (two out of three, or all three?). According to the OECD, a jurisdiction must meet two out of three criteria in order to be deemed cooperative. The Slovak document also questions how the third criterion should be defined when, at international level, ratification of the multilateral convention in the jurisdiction in question is not a requirement. “This may not necessarily translate into an actual commitment”, Bratislava notes.
In addition to the questions of transparency, the Commission and Slovak Presidency argue that certain characteristics of a tax system are relevant in determining whether a country favours aggressive tax planning. A number of jurisdictions have harmful tax measures which aim to attract foreign companies, in particular measures allowing a “significantly lower” level of taxation than the levels generally applicable in the third country in question, including zero taxation, the Commission explains. A low rate or a zero rate of corporate taxation is also an obvious characteristic to attract tax bases from other jurisdictions. Another indicator could therefore reflect the existence of a tax system with no corporate income tax or a zero corporate tax rate. This question of taxation level is, unsurprisingly, one of the most delicate as far as the member states are concerned.
BEPS. The finance ministers of the EU have furthermore asked the 'Code of Conduct' group of the Council to consider other criteria, for instance those based on the 'BEPS' action plan of the OECD to fight aggressive tax optimisation. BEPS, according to the document of the Slovak Presidency, contains four minimum standards, any one of which could create negative effects for other countries if left out of a national legislation. These are the methodology used to define whether there is a substantial economic activity in a country, the automatic exchange of information on tax rulings, country-by-country reporting to the tax administrations, measures aiming to prevent abusive advantages of bilateral tax agreements and a taxation dispute resolution mechanism.
Given international developments in the implementation of BEPS, the criteria on which third countries should be assessed could initially be whether or not they participate in the 'inclusive framework'. This inclusive framework brings together the countries committed to implementing BEPS and provides for this implementation to be monitored at national level. At a later stage, the EU may build on the results of the various monitoring exercises of the implementation of the inclusive framework.
The Slovak Presidency prefers to treat each of these criteria individually. It proposes that all should be met, without exception, to allow a jurisdiction to be left off the blacklist of tax havens. However, a distinction should be made for countries that have failed to meet some of the criteria, but can be seen to be making efforts to do so. Countries engaged in dialogue with the EU should not be included on the list. Dated targets should, however, be established, the Presidency argues. At the meeting of the G20, the French finance minister, Michel Sapin, told AFP that a number of countries, not just China, had “misgivings” on the issues of cooperation in the fight against tax evasion. However, the Chinese finance minister, Lou Jiwei, whose country holds the chair of the G20 in 2016, stressed the need to “deepen international tax cooperation by building on existing mechanisms”.
Counter-measures. For the less cooperative countries, the EU and the G20 are both considering counter-measures. In a third document, the Slovak Presidency argues that the European legislation could contain stricter provisions targeting third countries on the blacklist. This, incidentally, is the direction in which the Commission's proposal for public country-by-country reporting is already heading. The 'Code of Conduct' group should examine whether it will be possible to include similar provisions in current or future texts, in the fiscal or non-fiscal field. As regards measures taken at national level and coordinated, “possible options could include a withholding tax on transactions” carried out through the countries on the list, the Presidency adds. Lastly, the financial institutions of the EU could see their internal rules revised to take full account of the good taxation governance standards of third countries when they decide where to invest EU funds. (Original version in French by Elodie Lamer)